Form 1099-K: Reporting Requirements for 1099-K Income

Alert: Prior to 2021, the threshold for third-party payors to issue Form 1099-K was over $20,000 in payments and more than 200 transactions annually. Under guidance released in late 2024, in adherence of a 2021 tax law, the 1099-K reporting threshold for calendar year 2024 dropped to payments over $5,000 and any number of transactions. In 2025, as part of the One Big Beautiful Bill Act, the reporting threshold returned to its original level of over $20,000 in payments and more than 200 transactions annually. Please continue to check back for future updates. 

Key Takeaways

• Form 1099-K Purpose: Form 1099-K is used to report credit card and third-party network transactions (like Venmo and PayPal) to the IRS.
• One Big Beautiful Bill Changes: Due to the passing of the OBBB Act, the reporting threshold in 2025 will return to $20,000 and 200+ transactions. This reverses the previous threshold reduction in 2024 of $5,000 and any number of transactions.
• 1099-K Reporting Requirements and Compliance: Small business owners and others don’t file Form 1099-K; instead, third-party payment processors and credit card companies do. Business owners should ensure their tax statements match the IRS’ transaction records to reduce the risk of an IRS audit.

The world of business is highly digital in most aspects – including finances. Gone are the days when small business owners exclusively made cash transactions.

So, you might wonder how the IRS tracks online business transactions. That’s where the 1099-K form comes in.

The IRS debuted the form for the 2012 tax filing season to support the growing demand for online business transactions (including IRS Form 1120, 1120-S, and self-employed taxpayers and Form 1065 filers).

Like other forms in the 1099 series, the form has an important purpose – reporting credit card and third-party transactions. If that describes how your business gets paid, you should tune in as we explore the workings of the 1099-K form.

Do you have questions about a 1099-K you received? The team at Block Advisors can help you with your small business taxes.

What is a 1099-K used for?

First, we’ll explore the answer to the question, “What is a 1099-K used for?” Form 1099-K is an IRS form and is classified as an information return. It deals with card payments and third-party network transactions like Venmo, Paypal, and others. Your business uses the information on Form 1099-K when it files a tax return.

What triggers a 1099-K?

Guidance for 2025: Due to changes enacted by the One Big Beautiful Bill Act, the reporting threshold for Form 1099-K jumped back up to $20,000 and more than 200 transactions through a third-party payment service. These changes are effective immediately for calendar year 2025.

Guidance for 2024: The IRS announced a phased transition. For calendar year 2024 (taxes filed in the 2025 filing season), Form 1099-K was issued to small business owners from third-party services that processed more than $5,000 worth of payments, regardless of the number of individual payments or transactions. This was a significant decrease in the reporting threshold from prior years. Additionally, the IRS planned to continue phasing down the threshold over the next two years. They announced that in calendar year 2025, the threshold would drop to more than $2,500 in payments. Starting in calendar year 2026, the threshold would trigger if more than $600 worth of payments were made.

Guidance for 2023 and previous years: Form 1099-K was issued to small business owners and others who exceeded the $20,000 reporting threshold and had more than 200 transactions through a third-party payment service.

What if you don’t meet the reporting requirements?  Even if you don’t receive a Form 1099-K because of your business income from credit cards and third-party networks, you still need to report all business income you receive on your tax return. (Read more: Is crowdfunding taxable?)

How is 1099-K income reported?

There’s not really an answer to: “How to file a 1099-K?” That’s because, technically, YOU don’t file it as a small business owner. This is the responsibility of the third-party payment processors and credit card companies. They will report the payment transactions by filing Form 1099-K with the IRS. You will receive a copy of the form in the mail or electronically. No action is necessary for you, the small business owner.

But here’s an action: Make sure your tax statements match the IRS’ transaction records.

How does the IRS audit 1099-Ks?

Over the years, the Internal Revenue Service has contacted taxpayers whose gross business income is less than the amount reported on the form.

The 1099-K form is one of the information statements used to find income missing from tax returns. The IRS matches your return against the information statements filed under your Employer Identification Number (EIN), Tax Identification Number (TIN), or Social Security Number (SSN). If there’s an income mismatch, the IRS automatically sends you a notice asking for an explanation.

You may wonder how to report 1099-K income on your tax return. Thankfully, the IRS doesn’t require you to separately report the amount from every Form 1099-K on your return. However, the IRS may question businesses with smaller-than-expected income based on its analysis of Forms 1099-K reported to the business. In other words, based on what the IRS knows about your business, it may audit you if it thinks you aren’t reporting enough income from payment cards or third-party network transactions.

The IRS may not propose specific adjustments to your return based on Form 1099-K (unless you didn’t file a business return at all – such as a Schedule C or filed one with less income than appears on Form 1099-K). The IRS may not directly match Forms 1099-K to line items on your business return. However, the IRS has been known to contact business taxpayers when it believes there may be a discrepancy.

1099-K deductions

Let’s review what expenses you can deduct from your business income when you receive credit card payment transactions reported on a 1099-K form. While there may be others, here are some potential deductions:

1. Web hosting fees: You can deduct this if you must pay an annual web hosting fee for your online marketplace or shop.
2. Credit card or merchant processing fees: These can be deducted if you pay credit card company processing fees.
3. Internet access: Internet access for your established business entity can be deducted.
4. Advertising costs: If there’s a cost associated with marketing your business, you can deduct this to reduce your taxable income.
5. Home office: The small business home office deduction applies to small business owners who use part of their home exclusively and regularly for trade or business purposes. Learn more about the home office deduction and IRS Form 8829.

Get help with IRS Form 1099-K

Ensuring tax information returns like the 1099-K form match up with your business bookkeeping and records is critical. All sources of income and expenses are used to determine taxable income or loss. At the end of the day, forms like this help determine your business’ tax obligation.

Want to avoid the stress of filing on your own? Check out how you can file self-employment taxes online with a Block Advisors certified small business tax expert, backed up by our guarantees.

File with a tax pro today.

This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice.